Part I: Business Law Flashcards
2 sources of contracts
common law contracts
UCC contracts
common law contracts
involve real estate and usu. employment
UCC contracts
- UCC = Uniform Commercial Code
2. governs sale of goods and services
How to handle contract questions.
Make sure to figure out if you’re under the UCC or common law.
common law vs. UCC
- Common law is more detailed in order to have valid contracts.
- UCC is meant to make commerce fast and efficient.
express contract
contract made orally and/or written.
1. The buyer wants the seller’s items for a specific price.
implied (in-fact) contract
contract formed by intent and conduct of the parties
1. The buyer wants the seller’s items, the price is not known, but it is implied that the buyer will pay the price.
quasi contract (implied-in-law)
- Court imposes a contract because there was performance by a party.
- Imposed in cases of unjust enrichment.
unjust enrichment
The buyer receives and uses the product but doesn’t want to pay because the product doesn’t meet the buyer’s specifications.
bilateral contract
both sides make a promise
unilateral contract
one party makes a promise in exchange for some type of performance
executed contract
a contract that has been fulfilled by both parties
executory contract
a contract that has NOT YET been fulfilled by both parties
partially executed contract
only one side of the contract has been fully performed
valid contract
a contract that has been legally formed and meets the requirements to be formed
void contract
lacks a legal purpose or involves an illegal act
voidable contract
otherwise valid contract that can be voided so that one party can be legally protected
unenforceable contract
The parties can execute the contract, but the courts will not enforce it.
2 steps to a valid contract
offer and acceptance
Is there a difference between 1. “making an offer” and 2. “making an invitation to make an offer?”
Yes. A commercial on TV for a sale at a car dealership is 2 but not 1.
criteria of a valid offer (4 criteria)
- Price
- Subject matter
- Identification of the parties involved
- Time for performance
When can the offeror revoke his/her/it’s offer?
- Before the offeree accepts the offer.
acceptance of the offer
- Acceptance binds the contract, making it enforceable.
acceptance for unilateral offers
Occurs upon performance of the act required by the offer.
acceptance for bilateral offers- common law contracts
mirror image rule- anything besides agreement to the exact terms made in the offer becomes a counteroffer and rejection of the original offer
acceptance for bilateral offers- UCC contracts
- The contract depends if the parties are merchants or nonmerchants (regular people).
acceptance for bilateral offers- UCC contracts- merchants and nonmerchants (M and NM)
- M and NM: a definite expression of acceptance results in a contact.
- NM: acceptance w/additional terms forms contract but additional terms NOT enforceable
- M: acceptance w/additional terms- contract is formed and additional terms are enforceable as well.
If acceptance is sent by an authorized medium (mail)…
contract formed as soon as the acceptance is sent.
If offer doesn’t specify a required response medium (overnight mail)…
any method that is the same or faster method of communication will constitute acceptance.
mailbox rule
- If acceptance doc is dropped off in the mail before the deadline, then the offer has been accepted.
- Only for acceptance, not offers, counteroffers, or rejection- those have to be received to be effective.
counteroffer
If the offeree wants the product but wants a different price.
1. Relates to the mirror image rule.
rejection
Anytime the offeree rejects an offer in any way- offer is terminated.
termination
offers can be terminated through lapse of time or by an operation of the law:
- -Death or insanity
- -Destruction of subject matter
- -Subject matter is illegal
consideration
benefit (asset) promised by the offeror and the detriment promised (good) or performed (service) by the offeree
Main criterion of consideration
- Must be legally sufficient.
Does the value of the offeror’s consideration have to match that of the offeree’s?
No. Consideration has to be of legal value, but the values don’t have to be equal. The court doesn’t try to make contracts fair.
bargained-for-exchange
Contract includes legal detriment on both sides.
legal detriment
giving something up- good or service
Can consideration be something you were already obligated to do?
No.
Can past actions count as consideration for current promises?
No.
consideration and contract modifications- common law contracts
In a contract for services under common law, any modifications to the contract must have new consideration.
consideration and contract modifications- UCC contracts
UCC contracts allow modification w/out add. consideration for M, but not for NM.
statute of frauds
- Requires that certain types of contracts be in writing.
cutoff for oral or written contracts (UCC- goods)
- Contracts for goods $500 should be in writing.
cutoff for oral or written contracts (UCC- services)
There can be oral contracts > $500 involving services, but not goods.
exception to the “in writing” rule (common law)
Applies if the buyer and seller cannot be returned to the status quo b/c of partial performance.
cutoff for oral or written contracts (common law)
Contracts that cannot be performed in
parol evidence rule
- Any evidence besides what is written in the contract is not admissible.
To what types of contracts does the parol evidence rule apply?
Applies to complete written contracts.
exception to parol evidence rule
Fraudulent statements. If fraud occurred, it will be admitted as evidence in court.
defenses to formation- definition
Certain circumstances that can void a contract later on if they were present when the contract was formed.
defenses to formation- examples
- Mistakes
- Fraud
- Misrepresentation
- Undue influence (duress)
- Illegal acts/subject matter
capacity
each party to a contract must be of legal age.
minors and capacity
- Any minor entering a contract to void/disaffirm the contract up until they become of legal age.
- The minor must return any consideration gained in order to disaffirm the contract.
minors and capacity- “of necessity” items
- If the item is food, shelter, or clothing, and the item is in value with what the minor is accustomed to, the seller can recover a reasonable value from the minor.
minors and capacity- when minor reaches legal age
- The now-adult is fully liable to terms of contract and can either explicitly ratify contract or keep acting on it for a reasonable time after becoming an adult, implying ratification.
mental capacity
- Required to make or enter into a binding contract.
2. Excludes mentally incompetent or intoxicated people (to the extent they didn’t understand what they agreed to).
unilateral mistake
mistake by one party to the contract.
Are unilateral mistakes binding?
Yes, unless:
- The other party knows or should know the mistake.
- OR, the mistake is material and obvious.
- OR, the error was due to a mathematical calculation.
bilateral mistake
both parties are mistaken as to the subject matter
Are bilateral mistakes binding?
No. There is no contract.
statement of fact
A declaration claiming to be a representation of the truth.
“You will lose 20lbs. on this diet.”
sales puffing
- Generally an opinion or judgment (exaggeration) that is not made as a representation of fact.
- Presents opinions rather than facts and is usu. not considered a legally binding promise.
“This diet will help you feel better.”
statement of facts and defense to formation
For a valid defense to formation, there needs to be a statement of fact that was materially false.
material
enough to influence the buyer’s decision.
fraud vs. misrepresentation
- Fraud is intentionally leaving out key facts.
2. Misrepresentation is unintentionally leaving out key facts.
undue influence
- Someone in a position of trust or authority over someone else uses that trust/authority to get a party to enter a contract w/them.
- Such contracts are voidable.
duress
- Someone is coerced into a contract by physical force or threats of physical force, threats to disclose private info, or economic pressure.
- Such contracts are voidable.
illegality
contracts in violation of laws or statutes are voidable
conditions for performance
- precedent
- subsequent
- concurrent
precedent
something that has to happen before a party has a duty to perform
subsequent
something that has to happen after a duty to perform has arisen
concurrent
each party’s duty to perform under a contract simultaneously
discharge of duty
- failure of conditions
- mutual discharge
- novation
- accord & satisfaction
failure of conditions
If a condition precedent or subsequent doesn’t occur, there is no duty to perform.
mutual discharge
the parties can agree release one another, or to mutually discharge a contract
novation
new party replacing one party in the contract and assuming their liability in the contract
discharge by accord & satisfaction
One party agrees that the contract can be satisfied by completion of a different performance.
discharge by operation of law
- statute of limitations- time limits vary btwn. states
- bankruptcy
- impossibility
- death or insanity
- destruction of subject matter
- illegality
discharge by material breach
If one side of a contract materially breaches the contract, the other party is not required to perform.
damages
When monetary damages are awarded.
punitive damages
Money is rewarded to punish the wrongdoer.
compensatory damages
Money is rewarded to compensate for costs or loss actually suffered.
mitigation of damages
When a breach happens, the law usu. requires the nonbreaching party to take some action to cut their losses.
remedies for breach
- damages
- mitigation of damages
- specific performance
- recession
- reformation
specific performance
requiring the other party to perform the contract
recession
parties go back and are restored to their positions before the contract as much as possible
reformation
contract rewritten to address or solve an issue btwn. the parties
Can an incidental beneficiary sue to enforce a contract?
No. In other words, if A contracts w/B to build an office building and A wants B to use ABC plumbing, then ABC cannot sue A or B if B uses BCD plumbing instead b/c ABC was an incidental beneficiary.
Are parties in a contract prohibited from assigning their rights to another party?
Not unless a contract’s terms expressly prohibit this.
What makes a sales contract assignment to a 3rd party invalid?
The assignment cannot materially increase the other party’s risk.
